Nagarjuna Fertilisers and Chemicals

1.  We have audited the attached balance sheet of Nagarjuna Fertilizers
 and Chemicals Limited, as at 31st March, 2009, the profit and loss
 account and also the cash flow statement for the year ended on that
 date annexed thereto. These financial statements are the responsibility
 of the companys management. Our responsibility is to express an
 opinion on these financial statements based on our audit.
 
 2.  We conducted our audit in accordance with the auditing standards
 generally accepted in India. Those standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the
 financial statements are free of material misstatement. An audit
 includes examining, on a test basis, evidence supporting the amounts
 and disclousures in the financial statements. An audit also includes
 assessing the accounting principles used and significant estimates made
 by management as well as evaluating the overall financial statement
 presentation. We believe that our audit provides a reasonable basis for
 our opinion.
 
 3.  As required by the Companies (Auditors Report) Order, 2003 as
 amended by the Companies (Auditors Report) Order, (Amendment) 2004
 issued by the Central Government of India in terms of sub-section (4A)
 of section 227 of the Companies Act, 1956, we enclose in the Annexure a
 statement on the matters specified in paragraphs 4 and 5 of the said
 Order.
 
 4.  Further to our comments in the Annexure referred to above, we
 report that :
 
 i) We have obtained all the information and explanations, which to the
 best of our knowledge and belief were necessary for the purposes of our
 audit;
 
 ii) In our opinion, proper books of account as required by law have
 been kept by the company so far as appears from our examination of
 those books;
 
 iii) The balance sheet, profit and loss account and cash flow statement
 dealt with by this report are in agreement with the books of account.
 
 iv) In our opinion, the balance sheet, Profit and Loss account and cash
 flow statement dealt with by this report, comply with the applicable
 accounting standards referred to in sub-section (3C) of Section 211 of
 the Companies Act, 1956.
 
 v) On the basis of written representations received from the directors,
 as on 31st March, 2009 and taken on record by the Board of Directors,
 we report that none of the directors is disqualified as on 31st March,
 2009 from being appointed as a director in terms of clause (g) of
 sub-section (1) of section 274 of the Companies Act, 1956.
 
 vi) In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts read together with Note
 No 8 regarding Group Concession Scheme - Subsidy and Note No. 9 (b)
 regarding managements perception of recoverability of certain
 outstanding advances and other notes and significant accounting
 policies thereon give the information required by the Companies Act,
 1956. In the manner so required and give a true and fair view in
 conformity with the accounting principles generally accepted in India;
 
 i) In the case of the balance sheet of the state of affairs of the
 company as at 31st March, 2009.
 
 ii) In the case of the profit and loss account, of the profit for the
 year ended on that date; and
 
 iii) In the case of the cash flow statement, of the cash flows for the
 year ended on that date.
 
 Annexure
 
 Re : Nagarjuna Fertilizers and Chemicals Limited
 
 Referred to in paragraph 3 of our report of even date
 
 (i) (a) The company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 (b) According to the information and explanations given to us, the
 fixed assets (excluding assets given on lease) have been physically
 verified by the management during the year in a phased programme which
 in our opinion, is reasonable having regard to the size of the Company
 and the nature of the assets. No material discrepancies were noticed on
 such verification.
 
 (c) According to the information and explanations given to us, the
 Company has not disposed off substantial part of fixed assets, hence
 reporting on the going concern status in this regard does not arise.
 
 (ii) (a) Physical verification of inventories at Plants and at ware
 houses has been conducted by the management at reasonable intervals
 during the year.
 
 (b) In our opinion and according to the information and explanations
 given to us, the procedures of physical verification of inventories
 followed by the Management are reasonable and adequate in relation to
 the size of the company and nature of its business.
 
 (c) In our opinion, the company is maintaining proper records of
 inventories and based on the information and explanations given to us,
 discrepancies noticed on physical verification were not material in
 relation to the operations of the company and the same have been
 properly dealt with in the books of account.
 
 (iii) (a) The Company has not granted any ban, secured or unsecured to
 companies, firms or other parties covered in the register maintained
 under Section 301 of the Companies Act, 1956. Accordingly sub clauses
 (b), (c) and (d) of clause (iii) of this Order are not applicable.
 
 (b) The Company has not taken any loan, secured or unsecured from
 companies, firms or other parties covered in the register maintained
 under Section 301 of the Companies Act, 1956. Accordingly sub clauses
 (f) and (g) of clause (iii) of this Order are not applicable.
 
 (iv) In our opinion and according to the information and explanations
 given to us. there are adequate internal control systems commensurate
 with the size of the company and the nature of its business with regard
 to purchase of inventory and fixed assets and for the sale of goods and
 services. During the course of our audit, we have not observed any
 continuing failure to correct major weaknesses in internal control
 system.
 
 (v) (a) In our opinion and according to the information and
 explanations given to. us, and based on the representations by the
 management, all the contracts or arrangements that need to be entered
 in the register maintained under section 301 of the Act have been so
 entered.  (b) In our opinion and according to the information and
 explanations given to us, the transactions made in pursuance of such
 contracts or arrangements and exceeding the value of Rupees Five Lakhs
 in respect of any party during the year have been made at prices which
 are reasonable having regard to the prevailing market prices wherever
 available at the relevant time.
 
 (vi) In our opinion and according to the information and explanations
 given to us, the Company has complied with the directives issued by
 Reserve Bank of India and provisions of Section 58A and 58AA or any
 other relevant provisions of the Act and the Companies (Acceptance of
 Deposits) Rules 1975 with regard to deposits accepted from the public.
 According to the information and explanations given to us, the Company
 has complied with the orders passed by the Company Law Board or
 National Company Law Tribunal or Reserve Bank of India or any Court or
 any other Tribunal on the Company in respect of the aforesaid deposits.
 
 (vii) The Internal audit of the Company has been conducted by internal
 audit department. In our opinion, the scope and coverage of Internal
 Audit is commensurate with the size of the Company and nature of its
 business.
 
 (viii) We have broadly reviewed the books of account maintained by the
 Company pursuant to the Rules made by the Central Government for
 maintenance of cost records prescribed under Section 209(1) (d) of the
 Companies Act, 1956, and are of the opinion that prima facie the
 prescribed accounts and records have been made and maintained.
 
 (ix) (a) According to the information and explanations given to us, the
 company is regular in depositing undisputed statutory dues including
 Provident Fund, Investor Education and Protection Fund, Employees
 State Insurance. Income-tax, Sales-tax, Wealth Tax, Service Tax, Custom
 Duty, Excise Duty, cess and other applicable statutory dues with the
 appropriate authorities. There are no arrears of statutory dues as at
 31st March, 2009 which are outstanding for a period of more than six
 months from the date they became payable.
 
 (b) According to the Information and explanations given to.  us, there
 are no dues of Sales tax / income tax/ custom tax / wealth tax /
 service tax / excise duty / cess which have not been deposited on
 account of any dispute.
 
 (x) The Company has no accumulated losses as at 31st March, 2009. The
 Company has not incurred any cash losses in the financial year under
 report and in the immediately preceding financial year.
 
 (xi) During the year, the company has not defaulted in repayment of
 dues to Financial Institutions, Banks and debenture holders.
 
 (xii) According to the information and explanations given to us, the
 company has not granted any loans and advances on the basis of security
 by way of pledge of shares, debentures and other securities.
 
 (xiii) The company is not a Chit fund/Nidhi/Mutual benefit fund/
 Society. Therefore the provisions of clause 4(XIII) of the Companies
 (Auditors Report) Order, 2003 are not applicable to the company.
 
 (xiv) The company is not dealing or trading in shares, securities,
 debentures .and other investments.  Accordingly the provisions of
 clause 4(xiv) of the Companies (Auditors Report) Order, 2003 are not
 applicable to the company.
 
 (xv) According to the information and explanations given to us, the
 company during the year has not given any guarantee for loans taken by
 others from banks or financial institutions.
 
 (xvi) Term Loans obtained by the company during the year have been
 applied for the purposes for which they were obtained.
 
 (xvii) According to the information and explanations given to us and on
 an overall examination of the balance sheet of the company, we report
 that no funds raised on short - term basis have been used for long term
 investment by the company.
 
 (xviii) During the year the company has not made any preferential
 allotment shares to the parties and companies covered in the Register
 maintained under Section 301 of the Act. However, a reference is
 invited to Note 3 of the Schedule 13 to the financial statements
 regarding annulment of warrants and forfeiture of 10% payment made by
 the core promoters.
 
 (xix) According to the information and explanations given to us, the
 company has created securities for the debentures issued in the
 previous years.
 
 (xx) The company has not raised any money by public issues during the
 year.
 
 (xxi) In accordance with the information and explanations given to us
 and on our examination of books and records, no fraud on or by the
 company has been noticed or reported during the year.
 
                                for M. BHASKARA RAO & CO,
                                Chartered Accountants
 
                                V.K.MURALIDHAR
 
 Hyderabad                      Partner
 
 April 29, 2009                 MEMBERSHIP NUMBER 201570